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Analysts at Morgan Stanley have predicted a special dividend for Man Group, Europe’s largest listed hedge fund manager, which announces its year-end results tomorrow.

Man Group chief executive Manny Roman

Analysts Anil Sharma and Bruce Hamilton forecast a total special dividend of 7.9 cents, or 50% payout of performance fee income. This is based on “the group’s robust balance sheet [...], improving outlook for GLG and strong cash generation”, the note said.

The analysts estimate about $190 million of performance fees for 2013, with roughly 80% of this coming from GLG, the discretionary manager that Man Group bought in 2010.

An investment banker focusing on asset management said that paying out cash to shareholders – rather than using it for an acquisition would reflect a lack of targets who would want to be part of Man Group and a difficulty in closing deals.

A spokeswoman for Man Group declined to comment on the Morgan Stanley note but said the firm's mergers and acquisitions strategy remained unchanged.

The company has openly been on the lookout for acquisitions to diversify its business from troubled quantitative division AHL. It bought GLG in 2010, and fund of funds manager FRM two years later.

In April last year, Man Group announced that its regulatory status had changed, boosting its capital and providing more firepower for a potential acquisition.

As of June last year, the company had surplus capital of about $550 million, according to Morgan Stanley. In its interim results that month, chief executive Manny Roman said that funds of funds and long-only “bolt-on acquisitions” were of particular interest, provided they were the right “price, structure and cultural fit”.

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Man Group’s dividend policy is to pay out at least 100% of adjusted net management fee earnings per share in each financial year by way of ordinary dividend. Surplus capital, primarily from net performance fee earnings, will be distributed to shareholders over time by way or higher dividend payments or share repurchases, according to the company.

–write to hagnew@efinancialnews.com and follow on Twitter @HarrietAgnew